Just read Steve’s book and one of Kiyosakis and just about ready for the first +CF property purchase. One thing I would like to know is where does the 10.4% yield come from. I know the calculation, but why 10.4%. Sorry if this question sounds a bit dumb….[blink]
Search the forum. The answer lies deep with in the core of this forum.
Hi Darrin
You take the rent multiply by 52 and divide by the cost of the house. This gives you the gross yield.
What you are aiming for is a gross yield of 10.4%
eg 150*52/75000=10.4% gross yield.Also masquerades as the 11 sec rule. Take the rent, divide by 2, multiply by 1000 and that is what you should pay for the house to give you a gross yield of 10.4%.
eg 150 divided by 2, multiplied by 1000 = $75000Anyway someone may come up with a better explanation.
Also refer to Steve’s book “From 0 to 130 properties in 3.5 Years” p/30-34 where he explains when to use it.
Regards
Hi Darrin
are you asking why 10.4%, if so, its steve’s idea of when a deal starts to look atractive, personally and i’m sure steve agrees, i like a bit better than 10.4%, but in today market thats about as good as it gets it appears. (or is it ?)
regards westan
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Westan
That’s exactly what I was after, why 10.4. I gather the maths was done to get this percentage which then makes the return a bit more attactive.
Darrin, I think it’s just a figure to make sure a property covers expenses. If one is paying interest rates of about 6.5%, then to get 10.4% ought cover all expenses.
For me, it’s an easy way to work with numbers. Muppet gave you the technical way. I just take the property price and then double it for rental yield. So a 50k house should get 100 bucks a week rent; a 75k house = 150 rent; a 100k house = 200 rent etc. The way I do it is not technically correct, but it’s close, and it’s easy on my brain.
10.4 = 104 weeks really… 52 weeks in a year, so double that for yield.
kay henry
Hi Darrin,
This rule is a “rule of thumb” to help you filter the properties you look at and determine what is worth a second look.
As interest rates rise the rule becomes less effective but it is a quick formula to use and a lot quicker than 11 seconds. There is no magic in the rate of 10.4%
If your property passes this test you still have to do your homework to see if it is a good buy.
Cheers
Jeff
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